Entertainment allowance under income tax is a tax deduction that is available to government employees. It is intended to cover the cost of entertaining clients, customers, and other business associates.

The deduction is available under Section 16(ii) of the Income Tax Act, 1961. The amount of deduction that can be claimed is the least of the following:

• 20% of the employee’s basic salary
• Rs.5,000
• The actual entertainment allowance received by the employee in the financial year

To claim the deduction, the employee must submit a statement to their employer, detailing the amount of entertainment allowance they have claimed and the purpose for which it was spent. The employer will then deduct the amount of the allowance from the employee’s salary before calculating their tax liability.

It is important to note that the entertainment allowance deduction is only available to government employees. Employees of private companies cannot claim this deduction.

Here is an example of how the entertainment allowance deduction is calculated:

• An employee’s basic salary is Rs.100,000.
• The employee receives an entertainment allowance of Rs.6,000 in the financial year.

The employee can claim a deduction of Rs.5,000, which is the least of the following:

• 20% of the employee’s basic salary (Rs.20,000)
• Rs.5,000
• The actual entertainment allowance received (Rs.6,000)

Therefore, the employee’s taxable income will be reduced by Rs.5,000.

EXAMPLES

State: Delhi Job Title: Business Development Manager Entertainment Allowance: Rs.10,000 per month

This employee is responsible for building and maintaining relationships with clients in Delhi. They may use their entertainment allowance to pay for meals, drinks, and other expenses incurred while meeting with clients.

State: Maharashtra Job Title: Sales Representative Entertainment Allowance: Rs.5,000 per month

This employee works in the sales department of a company in Maharashtra. They use their entertainment allowance to pay for expenses incurred while meeting with potential customers, such as coffee and snacks.

State: Karnataka Job Title: Marketing Manager Entertainment Allowance: Rs.15,000 per month

This employee is responsible for developing and implementing marketing campaigns for a company in Karnataka. They use their entertainment allowance to pay for expenses incurred while attending industry events, networking with other professionals, and promoting the company’s products or services.

State: Gujarat Job Title: Public Relations Officer Entertainment Allowance: Rs.7,500 per month

This employee is responsible for managing the company’s public image and relationships with the media. They use their entertainment allowance to pay for expenses incurred while hosting press conferences, attending media events, and building relationships with journalists.

State: Tamil Nadu Job Title: Account Executive Entertainment Allowance: Rs.6,000 per month

This employee is responsible for managing client relationships and ensuring that clients are satisfied with the company’s products or services. They use their entertainment allowance to pay for expenses incurred while meeting with clients, such as meals and drinks.